Explaining and Forecasting Euro Area Exports: Which Competitiveness Indicator Performs Best?

33 Pages Posted: 6 Dec 2007

See all articles by Michele Ca' Zorzi

Michele Ca' Zorzi

European Central Bank (ECB)

Bernd Schnatz

European Central Bank (ECB)

Date Written: November 2007

Abstract

From a conceptual point of view there is little consensus of what should be the 'ideal indicator' of international cost and price competitiveness as each of the standard measures typically employed has its own merits and drawbacks. This calls for addressing the question from an empirical angle, searching for the indicator that best explains and helps forecast export developments. This paper constitutes a first attempt to systematically compare the properties of the alternative cost and price competitiveness measures of the euro area. Although they diverge sometimes, we find little evidence that there is one indicator consistently outperforming the other in terms of explaining and forecasting euro area exports. This suggests that the measures based on consumer and producer prices, which offer some advantages in terms of quality and timeliness, are good approximations of euro area price and cost competitiveness.

Keywords: real exchange rate, trade, exports, price competitiveness, euro area, forecast

JEL Classification: F17, F31, F41

Suggested Citation

Ca' Zorzi, Michele and Schnatz, Bernd, Explaining and Forecasting Euro Area Exports: Which Competitiveness Indicator Performs Best? (November 2007). ECB Working Paper No. 833. Available at SSRN: https://ssrn.com/abstract=1030207

Michele Ca' Zorzi (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Bernd Schnatz

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
069-1344-6517 (Phone)

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